Bankruptcy expert named Detroit's emergency manager

By COREY WILLIAMS, Associated Press

Thursday, March 14, 2013

DETROIT (AP) — A bankruptcy expert who represented Chrysler during its successful restructuring has been chosen to steer Detroit out of the financial abyss that has swallowed the distressed city, which was once one of the nation’s most prosperous.

Gov. Rick Snyder announced Thursday that he had chosen Kevyn Orr, a partner in the Cleveland-based law firm of Jones Day, to be Detroit’s emergency manager, a position that gives him broad powers to control all spending. The move makes Detroit the largest city in the U.S. to have its finances placed under state control.

“We can rise from the ashes,” Orr told a news conference. “This is a beautiful city and a wonderful state that gave me my start. I feel compelled to do this job.”

Detroit has lost a quarter of a million people during the last decade and remains saddled with a $327 million budget deficit and more than $14 billion in long-term debt.

It has been making ends meet on a month-to-month basis with the help of bond money held in a state escrow account. The city has also instituted mandatory unpaid days off for many city workers.

When he met with Snyder, Orr said, he called the manager job “an unsung hero task.” He asked the governor why he would bother to help the city. Snyder’s response was: “Kevyn, it’s the right thing to do, and it’s the right time to do it.”

The new manager said he relished the challenge, even though it meant up giving up his successful job with the law firm.

“It’s not that I’m altruistic, but if we can do this, I will have participated in one of the greatest turnarounds in the history of this country,” Orr said.

The emergency manager will have wide-ranging authority to mend the city’s budget, including renegotiating labor contracts, selling off assets and even suspending elected officials’ salaries.

Bing and the City Council will keep their jobs, but the manager will decide all financial matters. And only the manager will have the power to authorize the city to pursue bankruptcy.

A state-appointed review team previously determined that Detroit’s cash deficit meant the city would have to either increase revenues or cut spending — or both — by about $15 million per month for three months starting in January to “remain financially viable.”

Those troubles, and the struggles of Mayor Dave Bing and the City Council to present a workable turnaround plan, led Snyder to turn to Orr.

“The bottom line here is that we must stop fighting each other,” Bing said Thursday. “We must start to work together. I’m happy that now I’ve got teammates. I’ve got partners that can help me do things that need to be done in our city.”

Shortly before Orr was hired, Bing announced that Detroit had chosen Jones Day as the city’s restructuring counsel.

The international firm, with more than 2,400 attorneys on five continents, has the experience needed to assist Detroit in its restructuring, according to a news release from Bing’s office.

“The firm is well-regarded as experts in restructuring and insolvency, both with and without court supervision,” said James McTevia, president of a Michigan-based firm that specializes in turnaround management. “I am sure their goal is to keep Detroit out of the bankruptcy court.”

According to Jones Day’s website, Orr has practiced law in business restructuring, financial institution regulation and commercial litigation since 1984. He has also served as the chief government legal officer of a failed financial institution and a special master to oversee the operations of a real estate development firm. The names of the financial institution and development firm were not listed.

Orr also has represented health care financier National Century Financial Enterprises in its bankruptcy. The 1983 University of Michigan Law School graduate is a member of the American Bankruptcy Institute and serves on its law review advisory board.

Detroit is now the sixth Michigan city placed under state oversight. Pontiac, Flint, Ecorse, Allen Park and Benton Harbor already have managers, as do public school districts in Detroit, Highland Park and Muskegon Heights.

Orr’s hiring also is the latest in a string of embarrassing setbacks to befall Detroit in recent years.

Explicit text messages made public in 2008 revealed the tawdry affairs and other shenanigans by the city’s then-Mayor Kwame Kilpatrick, leading to criminal charges and eventually prison time for him.

On Monday, Kilpatrick was also convicted on 24 federal corruption charges, capping a five-month trial that exposed a brazen pay-to-play culture during his mayoral tenure and characterized the son of former Rep. Carolyn Cheeks Kilpatrick as an unscrupulous politician who took kickbacks, rigged contracts and lived far beyond his means.